How the pandemic will reshape procurement and supply chain: Revised 2020 outlook

Back to the drawing board… everything we thought we could expect in 2020 has been upended by Covid-19. This has been especially true for the global procurement and supply chain landscape. All the careful plans and strategies for 2020 are being recalibrated as companies try simultaneously to save on costs, drive value, surmount disruption and build agility and resilience.

Surrounded by this volatility, procurement and supply chain teams are scrambling to rewrite their agendas for the rest of the year. They need fast answers to some key questions: How do we keep one step ahead of rapidly shifting enterprise expectations? How do we build business immunity against a looming global downturn?

Guidance is at hand in the GEP Outlook 2020 report — just revised and reissued with a Covid-19 perspective on New Business and Economic Realities in a Post-Pandemic World, as its title states. And there’s good news amid all the anxiety: procurement and supply chain functions are, in fact, set to emerge as resilient value-drivers in the post-pandemic world.

One important point: supply chains will become day-to-day supply continuity stewards and leverage personnel and technology to enhance visibility and mitigate risks.

Suppliers themselves are coming to be seen as key partners in driving revenue growth and innovation to match changing customer preferences due to Covid-19.

Looking ahead, demand is expected to be more volatile, requiring more rapid supply adjustments to manage cost. Thus, investments will have to target deeper inventory visibility and distribution speed through agile technology.

The Post Covid-19 Outlook 2020 identifies seven areas in which procurement and supply chain leaders will need to focus to adapt to the new business environment and worsening macroeconomic indicators.

More resilience

Procurement teams are taking rapid action to build greater agility and durability into their operations. As a first priority, they will shift emphasis from bottom-line growth to cash optimization. Second, they will work to ensure supply continuity through risk modelling and prioritization. Third, they will adopt more “human-robotic” workforce models and transactions driven by analytics.

Cost reset

Organisations will look to increase working capital by extending payment terms and putting nonessential capital expenditure on the back burner. They could also reopen contracts and negotiate cost reductions with suppliers in devalued currency markets. AI-based should-cost modelling solutions could be employed to increase long-term savings.

Third-party risk reduction

Organisations will take measures to mitigate third-party risk, given how Covid-19 has interrupted supply chains and lowered production capacities. Their strategy for third-party risk management will include a rapid risk assessment, establishing alternative supply bases, creating network transparency and limiting dependence on single-source suppliers.

Implementing budget-to-pay:

To identify areas for optimization, organizations will extend the reach of source-to-pay into budget-to-pay (B2P). Procurement and finance will jointly develop cost-control measures instead of just collaborating on P&L cost reduction. Together, the CPO and CFO can drive financial discipline and separate “good” from “bad” cost more surgically.

Sustainability drive

With consumer pressures for greater sustainability expected to increase in the post-COVID-19 world, orienting businesses toward environmental responsibility will be key. Regulatory compliance will also be central to business strategy amid tighter government regulations. Companies will need to manage environmental, regulatory and social expectations from all stakeholders.

Rapid digital transition

The pandemic will push supply chain teams to take up the role of business partners and work with IT and the larger business toward digital transformation. Their priority digital technologies will include flexible cloud solutions and data lakes with third-party specialist providers. Organizations will also need to invest in AI-based data protection or blockchain to counter cybersecurity threats.

Deploying advanced analytics

Business forecasting will be of utmost importance for the rest of 2020 as a hard lesson learned from the pandemic. Procurement and supply chain will increasingly rely on advanced analytics to help them glean insights from their data across spend, contracts, suppliers, operations, accounts payable and market intelligence.

Supply management organisations must play an urgent and critical role in building resilient supply chains that are better suited for the volatility and risks of today’s operating environment. These seven megatrends, still emerging in the wake of the pandemic, will largely mark out the path organisations need to follow for the rest of the year and beyond to achieve this goal.